External Business Environment Analysis

July 30, 2019 | By Jonny | Filed in: Management Principles.

The External Business Environment Analysis (EBA) is an in-depth analysis of the internal and external business environment. It provides an insight into the operation of a business and its strategies. There are two areas of analysis: internal and external. While the internal part is basically concerned with the business practices of the organization, the external part is concerned with external events and economic conditions.

In spite of good governance, there may be problems within the organization as well as in the external environment. These can become serious impediments to the success of the business. Sometimes external events even cause great loss and this makes the external analysis even more important.

Strategic management of a business can be effectively carried out only when you understand its internal structure. However, your success in making strategic decisions is mainly dependent on the business strategy. Since you cannot take all the aspects of your business into consideration, your strategic management depends largely on the quality and consistency of decisions taken by the upper management.

It is the objective of any strategic management to monitor the organization, its performance and the external environment. Through external analysis, you can get a better understanding of your organization and identify critical points that affect business processes and operations. At this juncture, strategic management is required.

Before carrying out any external business environment analysis, it is essential to understand the nature of the business. The quality of its operations and products is determined largely by the overall strategies. A successful business can be mainly attributed to its internal organization.

To carry out an external analysis, you must get at least some basic information about the firm, such as its management and location, its growth and operational status. You should be able to learn about its culture, business procedures, financial status, and its work environment. The analysis must be designed in such a way that it will reveal the objectives of the organization.

The most important information that you need to gather is the status of the company’s product lines. You must have an idea about the working capital and money flow and know about the financial position of the firm. Without this information, you cannot carry out the necessary analysis of the firm.

The evaluation of the business may need an analysis of the change in technology. It may require analyzing the market trends, and the demand for products and services in different countries. This analysis will enable you to make the right investment decisions.

For instance, in an Italian company, if the manufacturing units are not harmonized, the output will be less than what would be expected from them, and thus you will need to evaluate the internal organizational structures. A similar problem exists in the US. To be able to determine the impact of internal management in the corporate world, the analysis of an external study is indispensable.

The external business environment analysis helps the firm understand the internal operations, as well as the external factors. It is a short report which contains a summary of the current situation of the business and its trends in the recent past. This also includes recommendations that can be implemented in order to improve the performance of the business.

In order to carry out a business environment analysis properly, it is necessary to use the highest quality software. An external environment analysis must contain the firm’s financial statements, the organizational structure, the operational structure, marketing strategy, the organizational goals, the strategic objectives, and the business strategy. All these must be properly analyzed to see the results.

The most important aspect of any business environment analysis is to be able to correlate and evaluate the results. This enables the business to know what to do next and to plan accordingly.


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